Vassar College Department of Economics

Economics 367b, Spring 2001

Comparative Economics

David Kennett

Blodgett 124, Ext 7394

E-mail: kennett

OH: T, TH: 9.30-11.30 a.m. or by appointment

1. Required Text

You will be asked to buy a copy of my own book: A New View of Comparative Economics, Dryden Press, 2000. You can be as critical as you like with this text, and I would be grateful if you would point out to me grammatical mistakes, errors in fact, and anything else that you find disturbing.

There is also a considerable amount of reading material on my web page. You can access this by going to:

or by going from the VC web page, to the economics department, to my page, to the course home page. That will put you on a web copy of this document, and you will be able to click on the titles to access the documents that you need. If you are not equipped to read web documents, or cannot get a colleague to download and print them for you, see me.

2. Overview

The study of comparative economics has changed a great deal in recent years, especially since 1989. The principal cause of this was the collapse of the Soviet centrally planned economic system which had served for many years as the polar alternative to the variety of capitalist systems that exist in the West. Simultaneously, variants of the Soviet system also underwent large scale reform or other changes. In China economic reform, although largely without its political counterpart, has transformed that economy in recent years. Yugoslavia, the dominant model of collectively owned socialism, has broken apart and much of its economy lies in ruins. Even Cuba, the bastion of socialism in the Western Hemisphere, deprived of support and subsidy from the Soviet Union, has, albeit reluctantly, been contemplating change.

Thus, in one sense capitalism has emerged the victor. However, at the same time that economies based on centralized planning were becoming extinct, new variants of capitalism were emerging, especially in East Asia, to challenge the western model. Japan long ago joined the ranks of the developed nations and its success in terms of growth and world trade has led to great interest in its institutions, culture and policies, and the significant differences from the economies of Europe and North America. Moreover, nations that only a decade ago were regarded as developing have made that leap into development, among them South Korea, Taiwan, Singapore and Thailand. Scrutiny of their systems of economic organization has increased accordingly. Even within the heart of Western Europe there has been change. Sweden, for long the defining nation of social democracy, has undergone a considerable shift in recent years. The variant economies of Western Europe are now being brought toward a more homogenous system by the action of the (now) 15-nation European Union.

All these changes, however, far from making the study of Comparative Economics redundant, have provided us with a new, and incisive way of looking at economies. The process of transition in Eastern Europe, for example, has forced us to compare the institutions of capitalism and socialism in a new way. The dramatic collapse of output in the former Soviet bloc, and the unexpectedly slow pace of recovery have forced us to evaluate very carefully the differences in institutions, culture, history and policy that have made this transition more painful than had been predicted.

3. Course Requirements

1. 1 Take-home Mid-term examination (35%).

2. 1 Paper to be written on a country of your choice (65%), addressing its economic structure and assessing any recent changes in it. Papers will be due on the last day of the reading period. Topics, including an outline and a bibliography are due by April 6. All topics must be closely related to work we have done in class. Papers which do not conform to the outline and bibliography will not be accepted.

Class attendance is essential and contribution is desirable. Readings are all required, except where instructed, and are to be done before the class for which they are required. You may be called upon to comment on or describe the readings during class. Late assignments will be penalized, and may not be accepted if unjustifiably tardy.

Part One: Introduction

1. Introduction and Orientation (Jan 17)

2. Types of Economic Systems (Jan 22)

Chapter 1, "Types of Economic Systems"

The vital importance of human capital in wealth is the subject of the 1998 World Development Report Knowledge for Development; click the link for a summary. For the issue of corruption and economic systems see Vito Tanzi "Corruption Around the World - Causes, Consequences, Scope, and Cures." The World Bank view can be seen in Helping Countries Combat Corruption: The Role of the World Bank . The issue of sustainable development is dealt with in David Pearce and Jeremy Warford's World Without End: An Introduction to Sustainable Development.

3. The Roots of Economic Systems (Jan 24)

Chapter 2, "The Roots of Economic Systems"

For an interesting discussion as to whether the next step in the evolution of economic systems is the end of the nation state see Tanzi, Vito "The Demise of the Nation State?" This was also subject of the 1997 World Development Report The State in a Changing World (Summary).

Part Two: Market Economies

4,5. How a Market System Works (Jan 29-Jan 31)

Chapter 3, "How a Market System Works"

Smith, Adam "The Wealth of Nations", in Kennett and Lieberman, The Road to Capitalism, (Dryden Press, 1992), Chapter 7, pp. 66-70. This piece consists of selected excerpts from his 1776 classic An Inquiry into the Nature and Causes of the Wealth of Nations.

Lipsey et al., "What Markets Do", in Kennett and Lieberman,Chapter 8, pp. 71-79.

Friedman, Milton "Economic and Political Freedom", in Kennett and Lieberman, Chapter 9, pp. 79-87.

6. Market Failure and Government Failure (Feb 5)

Chapter 4, "Market Failure and Government Failure"

Kruger, Ann, "Economists' Changing Perceptions of Government" in Bornstein, Morris Comparative Economic Systems: Models and Cases, Seventh Edition, Irwin Press, reading # 5, pp 78 -91.(File).

Many of the issues of performance of government owned enterprise in the productive sector are addressed in the World Bank book Bureaucrats in Business: the Economics and Politics of Government Ownership.

7. The Institutions of a Modern Market Economy (Feb 7)

Chapter 5, "The Institutions of a Modern Market Economy"

Kennett, David "The Role of Law in a Market Economy", in Kennett and Lieberman, pp. 97-109.

Corrigan, E. Gerald "The Role of Central Banks in Emergent Market Economies", in Kennett and Lieberman, Chapter 14, pp 120-131.

van Agtmael, Antoine, "Requirements for a Successful Equity Market", in Kennett and Lieberman, Ch.16, pp. 144-155.

Part Three: European Economies


8. Indicative Planning and the French Economy (Feb 12)

Chapter 6, "Indicative Planning and the French Economy"

9. Sweden and Social Democracy (Feb 14)

Chapter 7, "Sweden and Social Democracy"

10. The History and Institutions of the EU (Feb 19)

Chapter 8, "History and Institutions of the EU"

Lots of information on practically every aspect of the European Union can be obtained from its official Europa website.

11. The Economic Consequences of the EU (Feb 21)

Chapter 9, "The Economic Consequences of the EU"

For the development of the Monetary Union a good reference is the European Central Bank website.

Part Four: Asian Economies

12. Japan (Feb 26)

Chapter 10, "Japan"

For an up-to-date analysis see the IMF Report "Japan: Selected Issues," especially sections IV, V, VI which deal with the critical aspects of the financial sector and corporate governance.

13. The Republic of Korea (Feb 28)

Chapter 11, "The Republic of Korea"

See also the IMF report on "Korea: Selected Issues," which deals almost exclusively with the prospects for the reform of the chaebol system.


14. The People's Republic of China (Mar 5)

Chapter 12, "The People's Republic of China"


March 7: Take-home Mid-term examination


Mid Term Break (March 9 - March 25)

15. Some other Asian Economies (Mar 26)

Chapter 13, "Other Tigers: Singapore, Taiwan, Indonesia"

16. The Nature of the Asian Miracles (Mar 28)

Chapter 14, "The Nature of the Asian Miracles"

Rodrik, Dani, "King Kong Meets Godzilla: The World Bank and the East Asian Miracle" (File)

Young, Alwyn, "Lessons from the East Asian NICS: A contrarian view" (File)

Crafts, Nicholas "East Asian Growth Before and After the Crisis."

The World Bank analysis of the causes of, and prospects for recovery from the "Asian Crisis" can be found in East Asia the Road to Recovery.

The very latest IMF view (Jan 16, 1999) is given by its Director General Michel Camdessus in "The Economic and Financial Situation in Asia: Latest Developments"

Part Five: Planned Economies

17. The Command Economy (April 2)

Chapter 15, "The Command Economy"

Kohler, Heinz, "Soviet Central Planning", in Kennett and Lieberman, Chapter 1, pp. 1-15.

Litwack, John L., "Legality and Market Reform in Soviet-Type Economies" in Kennett and Lieberman, Chapter 13, pp.110-120.

18. The Operation of the Soviet Planned Economy (April 4)

Chapter 16, "The Operation of the Soviet Planned Economy"

Lipton, David and Jeffrey Sachs, "The Consequences of Central Planning in Eastern Europe" in Kennett and Lieberman, Chapter 3, pp. 27-36.

von Mises, Ludwig, "Economic Calculation in Socialism", in Kennett and Lieberman, Chapter 4, pp. 37-45.

Kornai, Janos, "The Soft Budget Constraint", in Kennett and Lieberman, Chapter 2, pp. 15-26.

Lieberman, Marc,"Banking in the Former Soviet Union", in Kennett and Lieberman, Chapter 15, pp.132-143.

Grossman, Gregory "Sub-Rosa Privatization and Marketization in the USSR", in Kennett and Lieberman, Chapter 23, pp. 220-229.

19. The Participatory Economy: The Case of Yugoslavia (April 9)

Chapter 17, "The Participatory Economy: The Case of Yugoslavia"

Vanek, Jaroslav "The Participatory Economy," in Bornstein Chapter 17, p. 288-289. (File)

Sacks, Stephen R., "The Yugoslav Firm," in Bornstein, Chapter 18, pp. 300-321. (File)

Burkett, John P., "Self-Managed Market Socialism and the Yugoslav Economy, 1950-51," in Bornstein, Chapter 19, pp. 322-352. (File)

20. The Possibilities of a Third Way (April 11)

Chapter 18, "The Possibilities of a Third Way"

Keren, Michael "On the (IM)Possibility of Market Socialism", Kennett and Lieberman, pp. 45-52.

Popkova-Pijasheva, Larissa, "Why is the Plan Incompatible with the Market", Kennett and Lieberman, pp. 53-62.

Part Six: Transition Economies

21. Privatization in Britain (April 16)

Chapter 19, "Privatization in Britain "

Walters, Alan "Misapprehensions on Privatization", in Kennett and Lieberman, pp. 258-261.

22. The Reunification of Germany (April 18)

Chapter 20, "The Reunification of Germany"

23. The Process of Transition to a Market Economy (April 23)

Chapter 21, "The Process of Transition to a Market Economy"

The issue of transition was the subject of the 1996 World Development Report From Plan to Market, and an executive summary can be found here.

24. Reform of the Russian Economy (April 25)

Chapter 22, "Reform of the Russian Economy"

Winniecki, Jan "Why Economic Reforms Fail in Soviet Style Systems", in Kennett and Lieberman, pp. 295-308. For a contemporary analysis of progress of reform in Russia and throughout the former Soviet bloc see the paper by Stanley Fischer et al. "From Transition to Market: Evidence and Growth Prospects." Another view is that of the United Nations Economic Commission for Europe in the Summary of the Economic Survey of Europe.

25. Other East European Economies: Poland and the Czech Republic (April 30)

Chapter 23, "Reform in Poland and the Czech Republic"

Kuran, Timur, "Is it Surprising That We Were Surprised?", in Kennett and Lieberman, pp. 332-338.

IMF Report: "Republic of Poland: Selected Issues and Statistical Appendix."

IMF Report: "The Czech Republic: Selected Issues."

26. Review (May 2)